An interview with Kevin Kennedy

Kevin Kennedy’s Coolcat Explosive Small Cap Growth Stock Report, launched in October 1997, has been ranked America’s No. 1 investment newsletter by independent rating service The Hulbert Financial Digest. And no wonder: the newsletter’s portfolios have posted an overall gain for the eight years ending in 2006 of a whopping 440%, or 23.5% on an annualized basis.

Kennedy, a veteran of more than 20 years in newspaper journalism, recently shared his investing philosophy and opinions in an interview with SmallCapInvestor.com, and named his three top small-cap picks--Lifeway Foods Inc. (Nasdaq: LWAY), Hoku Scientific (Nasdaq: HOKU) and TOP Tankers (Nasdaq: TOPT).  

Explain your investment process and criteria for investments.

My focus is finding the strongest stocks in the strongest market conditions and using money management approaches to maximize gains and cut losses short.

The strength of the market can represent up to 50% of the reason for a stock’s gains, so it’s very important to be in sync with the market. I focus on the Nasdaq Composite and look for it to be trading above its 50-day moving average as a basic measure of market strength.

If the market is strong, I will be more aggressive; if the market is weak, I will retreat to mostly cash.

In a strong market I look for the strongest stocks. I am talking primarily about technical price strength as opposed to fundamentals. I look for high relative strength, recent new 52-week highs and strong volume on up days.

I then look under the hood. What is the fundamental story that is driving the price higher? It could be strong recent earnings. It could be in a sector that has been strong. It could have new product news or announcements of new contracts.

I look to buy stocks like this on a modest pullback and then use money management rules to take profits and cut losses. I go into more depth on this process in The Coolcat Guide to Winning Stocks on our CoolcatReport.com website.

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